The Neosocialist DelusionJanuary/February 2020 45
privileged few gorge themselves with
luxuries, while the starving multitude
lack the bare necessities of life.”
Adam Smith responded to Rousseau
by arguing that under the right condi-
tions, competitive markets could lead to
“universal opulence”—by which he meant
a respectable standard of living for
everybody. That took care of the material
problem, the starving multitudes lacking
bare necessities. But it didn’t get rid of the
psychological problem, the anxiety about
comparative social status.
The neosocialists are descended from
Rousseau. They downplay poverty and
fetishize equality, focus on wealth distri-
bution rather than wealth creation, and
seem to care as much about lowering those
at the top as raising those at the bottom.
The movement’s signature policy
proposal is a wealth tax, an annual levy
on household assets. Touted by econo-
mists such as Thomas Piketty, Emmanuel
Saez, and Gabriel Zucman, all associated
with the Paris School of Economics, the
concept has been embraced by both
Sanders and Elizabeth Warren, U.S.
senators from Vermont and Massachusetts,
respectively, who are running for the
Democratic presidential nomination. At
first, Warren advocated a two percent
tax on households worth more than $50
million and a three percent tax on
billionaires. Later, pressed on how she
would pay for her proposed universal
health insurance, she doubled the billion-
aire tax to six percent. Sanders’s plan starts
at taxing $16 million in assets at one
percent and tops out at an eight percent
tax for assets exceeding $10 billion.
The radicalism of this approach is
often underestimated. Many people con-
flate wealth taxes with higher income
taxes or see them as mere extensions of a
similar concept. But wealth taxes are
fundamentally different instruments with
much broader ramifications for eco-
nomic dynamism and individual liberty.
The main effect of a wealth tax would
be to discourage wealthy individuals
from holding demonstrable assets. Any
individual or household within shout-
ing distance of the threshold would have
to get its assets valued annually, impos-
ing costs and creating a permanent jobs
program for tax lawyers and accountants,
whose chief responsibility would be to
figure out ways around the law, including
moving assets abroad.
A wealth tax would dramatically curtail
private investment. The higher people
rise on the economic ladder, the more of
their resources go to investment instead
of consumption. Those investments, in
turn, often fuel innovative, risky ventures,
which get funded in the hopes that they
will eventually produce still greater gains.
A wealth tax would upend the incentive
structure for rich people, causing many to
stop funding productive economic
activity and focus instead on reducing
their tax exposure and hiding their assets.
Warren contends that calculating one’s
wealth tax would be as easy as calculating
one’s property tax, but that is ridiculous.
Take a firm that has a market value but
no income—a frequent situation for
startups but also common for established
firms in various situations, such as a
turnaround. Rich investors in such firms
would have to sell their shares to pay
the wealth tax or force the companies to
disburse cash rather than invest in the
future. Either way, the tax would discour-
age investment, reduce innovation, and
encourage short-term thinking.
A wealth tax, finally, would force
everyone whose assets were near its